Chapter 10 Annexation of Present-Use Value Land

1. Chapter 10 Annexation of Present-Use Value Land

2. Annexation Reform “Annexation Reform” legislation enacted in 2011 brought substantial changes both to the process of annexation and to its interaction with the PUV program. Now, annexation and PUV are separate issues—PUV property can be annexed, and taxes, deferrals, and rollbacks are handled just as with the county. The only major connection now is that owners of PUV property must consent to being annexed.

3. I. Involuntary Annexation - Background • Annexation, of contiguous properties, initiated by a municipality (city, town, or village) • Previously, PUV property could be annexed, but owners did not pay taxes until property came out of PUV • Municipalities could still use PUV properties as a bridge to other properties

4. I. Involuntary Annexation - Consent • As a result of 2011 legislation, a municipality cannot annex property used for “bona fide farm purposes” without written consent of the owner. • Enrollment in PUV is evidence of property being used for bona fide farm purposes. • If the PUV property is not annexed (for lack of consent), the municipality can’t “bridge” to annex the neighboring property, either.

5. I. Involuntary Annexation – Consent, cont’d. • There are other forms of evidence that establish bona fide farm purposes [G.S. 153A-340(b)(2)(a)]: • A farm sales tax exemption certificate issued by the Department of Revenue. • A copy of the property tax listing showing that the property is eligible for participation in the present use value program pursuant to G.S. 105-277.3. • A copy of the farm owner's or operator's Schedule F from the owner's or operator's most recent federal income tax return. • A forest management plan. • A Farm Identification Number issued by the United States Department of Agriculture Farm Service Agency.

6. I. InvoluntaryAnnexation – Consent, cont’d. NOTE These items are not to be used for purposes of determining whether a property is eligible for participating in the PUV program. For property tax purposes, they are relevant only for determining whether a property which loses PUV status will automatically become subject to annexation and municipal taxation.

7. I. InvoluntaryAnnexation – Effective Date • All involuntary annexations initiated on or after July 1, 2011 must establish the effective date as June 30 (of whatever year is appropriate). • This means no more prorating taxes to the municipality for partial fiscal years! At least, for involuntary annexations…

8. II. Voluntary Annexation • These occur when property owners petition to become annexed into a municipality. • Because these are not forced annexations, • consent is not an issue • the annexed properties don’t have to be contiguous with the municipality, and • any effective date can be specified

9. Annexation Examples

10. 1-Q • Property is currently in PUV and is not in the city limits. City proposes annexing several properties, including the PUV tract.

11. 1-A • The PUV tract will be annexed into the city only with the written consent of the owner.

12. 2-Q • Property is currently in PUV and is not in the city limits. City proposes annexing several properties, including the PUV tract. The owner decides that it wishes to pay city taxes and receive city services.

13. 2-A • With the owner’s written consent, the property will be annexed without requiring removal from the PUV program. • The annexation becomes effective on June 30 of the year specified in the annexation ordinance. • As of the effective date, the owner becomes both liable for city property taxes and eligible for city services.

14. 3-Q • A city proposes annexing several properties, including a large PUV tract with a valuable house. The owner refuses to consent to annexation. The city requests that the assessor split the property to create a separate tax parcel for the homesite. This would allow the city to tax the homesite parcel, since the house and its homesite acreage could not qualify for PUV or, presumably, for any other “bona fide farm purpose.”

15. 3-A • The assessor should deny this request by the city. There is no provision in the statutes that allow an assessor to arbitrarily create a separate tax parcel to facilitate favorable tax situations for the city. • If there is a publicly recorded document (plat, deed, etc.) that justifies the separate parcel, the assessor may do so. • Still, it would likely be difficult for the city to establish that the owner’s consent was not required as to the house, since the statutory forms of evidence establishing use for bona fide farm purposes are not necessarily tied to a specific tax parcel.

16. 4-Q • A landowner with property in PUV joins with other area property owners in a petition to be annexed into a nearby municipality.

17. 4-A • Except in certain situations, the municipality is not required to grant the petition. • If granted, however, the effective date of the annexation can be set at any date desired by the municipality, and the municipality tax bill which results from the annexation will have to be prorated if the effective date is anything other than June 30.

18. 5-Q • A municipality adopts an annexation ordinance. An affected landowner with property in PUV refuses consent to annexation. Several years later, the landowner requests to be annexed and to receive services from the municipality.

19. 5-A • If the annexation request is granted, the property will be annexed without requiring removal from the PUV program. • The annexation becomes effective when the request is granted. • As of the effective date, the owner becomes both liable for city property taxes (based on the reduced present-use value), and eligible for city services. • The municipality tax bill which results from the annexation will have to be prorated if the effective date is anything other than June 30.